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> because the Treasury needs banks to purchase government bonds Does it? Or is this just how the system is currently designed? 50 years ago we might have aske

> because the Treasury needs banks to purchase government bonds Does it? Or is this just how the system is currently designed? 50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially.

runeks 4y ago
> Does it? Or is this just how the system is currently designed? It does in the sense that the US Government will default on its financial obligations if banks don’t use deposits to buy government bonds.
- dllthomas 4y ago
  I'm very much not saying that the outcome wouldn't be disastrous, but IME default is clearly unconstitutional, and so if statute and circumstance conspire to make default the only option then violating some statute to prevent default is appropriate, potentially to the point of just printing what we need to meet our obligations.
oarabbus_ 4y ago
>Does it? Or is this just how the system is currently designed? Yes, to both questions. The US Debt is at $31 trillion, it only works as long as the system keeps feeding money into government bonds. The entire global financial system (not just the USA; the rest of the world is dependent on the USD and US banks) is reliant on this cycle of money. >50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially. It was realized the gold standard stifled growth too much, and was abandoned just about 50 years ago as well. You can have a safe system without growth (everything Tech was built off credit/debt and castles in the sky until decades after the companies were founded) or you can have the tech industry with a debt-credit based system.
- BlueTemplar 4y ago
  Trying to keep up the growth half a century ago was the last thing that (at least the West) needed to do - and it was already aware of that at that point.
- diffeomorphism 4y ago
  That does not address the second question at all? The bonds need to be bought by someone, but you gave no argument why this someone has to be banks and why banks need tax money for bailouts on top of that.
  - oarabbus_ 4y ago
    It was explained, maybe you didn't connect the reasoning. First, there are no entities that have the amount of capital needed to keep the bond market moving besides banks. This is a $50 trillion market that makes the stock market look like a lemonade stand. I would suggest you do some research on the bond markets, it will become immediately apparent why only central and private banks have the capital necessary to drive it. It's the nature of a credit/debt based system, which is currently in a booming credit cycle (although perhaps the end of the cycle) As to why do banks need tax money for bailouts? The banks don't need tax money, if you're willing to let banks fail - which would likely be healthy in the long run. But in the short term, Joe Middle Class can't get a car loan to get a car, Wealthy Sally can't get a business loan to start a company and employ 50 people, Minimum Wage Mike can't get a home loan after saving up money for 25 years. It's certainly a shame that banks basically face no consequences and the taxpayer has to pay for it. But people's perspective on bank bailouts changes quickly when they realize the "side effects" are their credit cards no longer exist and their loan rates tripled.
  - a_new_user 4y ago
    The banks need to buy treasuries, because they treat bonds as a risk free financial instrument. Everyone else would have to recognize the risks inherent in those bonds and thus demand higher interest. The federal government can't afford that. The reason why banks need to be bailed out, is because they treat treasuries as risk-free financial instruments. If they didn't get bailed out from time to time, they'd have to recognize the risk in buying treasuries.

runeks 4y ago

> Does it? Or is this just how the system is currently designed? It does in the sense that the US Government will default on its financial obligations if banks don’t use deposits to buy government bonds.

dllthomas 4y ago
I'm very much not saying that the outcome wouldn't be disastrous, but IME default is clearly unconstitutional, and so if statute and circumstance conspire to make default the only option then violating some statute to prevent default is appropriate, potentially to the point of just printing what we need to meet our obligations.

oarabbus_ 4y ago

>Does it? Or is this just how the system is currently designed? Yes, to both questions. The US Debt is at $31 trillion, it only works as long as the system keeps feeding money into government bonds. The entire global financial system (not just the USA; the rest of the world is dependent on the USD and US banks) is reliant on this cycle of money. >50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially. It was realized the gold standard stifled growth too much, and was abandoned just about 50 years ago as well. You can have a safe system without growth (everything Tech was built off credit/debt and castles in the sky until decades after the companies were founded) or you can have the tech industry with a debt-credit based system.

BlueTemplar 4y ago
Trying to keep up the growth half a century ago was the last thing that (at least the West) needed to do - and it was already aware of that at that point.
diffeomorphism 4y ago
That does not address the second question at all? The bonds need to be bought by someone, but you gave no argument why this someone has to be banks and why banks need tax money for bailouts on top of that.
- oarabbus_ 4y ago
  It was explained, maybe you didn't connect the reasoning. First, there are no entities that have the amount of capital needed to keep the bond market moving besides banks. This is a $50 trillion market that makes the stock market look like a lemonade stand. I would suggest you do some research on the bond markets, it will become immediately apparent why only central and private banks have the capital necessary to drive it. It's the nature of a credit/debt based system, which is currently in a booming credit cycle (although perhaps the end of the cycle) As to why do banks need tax money for bailouts? The banks don't need tax money, if you're willing to let banks fail - which would likely be healthy in the long run. But in the short term, Joe Middle Class can't get a car loan to get a car, Wealthy Sally can't get a business loan to start a company and employ 50 people, Minimum Wage Mike can't get a home loan after saving up money for 25 years. It's certainly a shame that banks basically face no consequences and the taxpayer has to pay for it. But people's perspective on bank bailouts changes quickly when they realize the "side effects" are their credit cards no longer exist and their loan rates tripled.
- a_new_user 4y ago
  The banks need to buy treasuries, because they treat bonds as a risk free financial instrument. Everyone else would have to recognize the risks inherent in those bonds and thus demand higher interest. The federal government can't afford that. The reason why banks need to be bailed out, is because they treat treasuries as risk-free financial instruments. If they didn't get bailed out from time to time, they'd have to recognize the risk in buying treasuries.